Supply chain management (SCM) is the process of overseeing your product from construction to delivery with an eye for creating the best product at the best price. For small businesses, this often involves:
- Sourcing products, parts, or materials, either domestically or overseas
- Using a third-party fulfillment service or performing fulfillment in-house
- Handling logistics and transportation
- Mitigating issues caused by natural disasters, trade wars, or other unexpected events
- Organizing, tracking, and replenishing inventory
- Preparing for seasonal upswings in demand
Post-COVID-19, businesses are still feeling the effects of supply chain issues, which many executives believe will continue beyond 2024. Small businesses are hard hit by disruptions in the supply chain but are also able to adapt more quickly than larger companies. Whether you’re starting a retail business or aiming to improve your existing one, it’s important to understand how to optimize supply chain management so you have fewer disruptions, more efficient production and delivery, and happier customers.
How Supply Chain Management Works in a Small Business
How supply chain management actually works will depend on your business. Some businesses do most everything themselves. For example, a beekeeper may produce honey and beeswax products from their own apiary, create their own labels (though they may have a supplier for paper and ink), sell via ecommerce, and pack and distribute their products themselves. In this case, they have a direct influence on every aspect of the supply chain.
Others choose to outsource. A dropshipper may only handle taking orders, connecting to another company for fulfillment and on-demand inventory. The dropshipper then relies on the other companies to handle the supply chain issues but should keep aware of changes in supply and have alternative suppliers in mind for popular products.
Most businesses, however, operate somewhere in between. For example, you may outsource raw materials, create your products, then send them to a fulfillment company to handle warehousing and delivery.
Regardless of where you lie on the spectrum, supply chain management involves finding suppliers, establishing relationships with the companies, negotiating for the best price and quality, and monitoring performance to ensure your customers are satisfied.
The Six Phases of Supply Chain Management in Small Business
The steps in the supply chain process vary by the type of industry you are in. For example, manufacturers need to source materials and produce, while retailers might only acquire finished products. Here’s one example of the steps involved in a business’ supply chain.
Let’s say you run a business making and selling candles:
- Sourcing raw materials: This would involve sourcing, ordering, and handling the logistics of the wax, wicks, scents, jars, packaging, and other basic materials that you use in production.
- Manufacturing products: This step revolves around creating your candles and/or labeling them.
- Inventory Management: This step would involve giving each of your candles a stock-keeping unit (SKU) number and a location, as well as entering those details into your inventory management software. Brick-and-mortar sellers typically shelve a portion of their stock or use it in merchandising, while ecommerce businesses may use in-house or third-party fulfillment warehouses.
- Take customer orders: As you take orders for your candles, this step heavily relies on tracking your supply to know when to order more products or raw materials.
- Fulfill the orders: For wholesalers or ecommerce businesses, this involves packaging orders, sending them, and managing logistics.
- Deliver the products: This final step is used to get your candles to your customers through a third-party logistics service, such as FedEx, UPS, or USPS.
Transportation logistics: Small businesses may use any number of methods to move their goods, including ocean or air freight. If you are transporting from overseas, then customs inspections may be considered part of your supply chain management.
Using Technology for SCM
Supply chain management can get complex, especially if you use multiple sources for materials or delivery. One way to more efficiently manage your supply chain is to use software, such as
- Supply chain management software (SCM) handles all elements of supply operations, including inventory tools, supplier management, order processing, demand forecasting, warehouse management, bid and spend tools, and more. However, it may be more than many small operations need, and typically comes at a hefty price.
- A point-of-sale (POS) software or inventory management software that tracks sales, includes low inventory alerts, and has invoicing capabilities might fill the need for most small businesses. The best systems also have automated invoicing or include catalogs that let you compare multiple vendors for the best prices. If you sell online, be sure your POS and ecommerce site tie together for inventory tracking.
- Fulfillment software lets you manage your warehouse and most often includes multiple delivery services for price comparison.
- Many delivery companies include software to track shipments. In some cases, fulfillment software uses them as well. Tracking not only gives customers reassurance but also lets you keep track of delivery times as well as any issues with drop-offs.
- At its simplest, accounting software or Excel can be used for tracking sales, inventory, expenses, and incident data.
Why Is Supply Chain Management Important?
A well-run supply chain means your products are being built better, shipped quickly and without damage, and aren’t costing you more than you should pay. That translates to more profits for you. In fact, a Deloitte study found that 79% of organizations with “superior supply chain capabilities” saw revenue growth well above average.
However, it’s not just the bottom line but the future of your company at stake. A widely cited survey from GEODIS found that 57% of companies believe supply chain management gives them a competitive edge. With small businesses often going head-to-head with large corporations and franchises that can cut costs because they order in such bulk, you need all the advantages you can get.
Read our article on supply chain management statistics.
Advantages of Supply Chain Management
Managing your supply chain will take time, effort, and perhaps an investment of money. However, the advantages are great. Here are a few benefits of proper supply chain management:
- Reduced costs: By identifying ineffective processes, ensuring they’re partnered with good suppliers and shipping companies, and tracking their inventory, companies have cut their average supply cost from 13.2% to 7.9%.
- Improved efficiency: Proper SCM reduces costs but speeds up delivery and improves customer satisfaction, helping sales. Some efficiency-enhancing techniques include automated invoicing for low stock, streamlined logistics planning, real-time inventory tracking, and predictive demand forecasting.
- Avoiding disruptions: By understanding the risk points in your supply chain, you can set contingency plans in place. For example, developing connections to local suppliers will ensure your customers continue to get their products even if embargoes or disasters affect your overseas partners.
- Quick pivots: One advantage a small business has over larger ones is that it can react more quickly to problems, whether in-house or in the world. A well-managed supply chain helps you recognize problems and enact solutions fast.
- Quality control: A grocer or restaurant may have relationships with several farms locally and across the nation to get seasonal food from where they grow best. Delivery also has quality control issues—the delivery service that leaves your products out in the rain will bring you unhappy customers.
- Ethical practices: Some 48% of companies face pressure to adopt eco-conscious practices in their supply chains. If that’s you, then knowing your suppliers follow green practices helps support your brand. Ditto for the ethical use of labor in manufacturing, particularly in textiles.
All of this boils down to increased profits through happy customers and efficient practices.
10 Ways to Optimize Your Supply Chain Management
Now, let’s look at some ideas for making SCM more effective for your small business. The better your processes are, the better your revenue.
Know Your Strengths & Weaknesses
Understanding the parts of a supply chain you can handle well yourself and where you are weak enables you to make decisions on where to invest in partners. Understanding your key customers also helps you prioritize. Finally, look at your competitors—what parts of the supply chain do they handle personally and what do they hire out? How can you do better?
Choose Your Suppliers Wisely
Whether it’s a fulfillment company, a supplier of raw materials, or a transportation provider, you want a partner who is reliable and honest, understands your company, and will value your partnership. That last thing is especially important for small businesses because it’s all too easy to value bigger contracts. In addition, you should ask if they have been having supply issues of their own that might affect you.
Global or local? Buying globally (such as importing products from China) can seem like a cheaper option, but you need to consider other costs, like transportation, reliability, and quality of product. Local may be better in the long run. Plus, by eliminating overseas shipping, it’s more green, which people value more and more.
Develop Good Relationships With Suppliers
This is vital for small businesses that may not have the largest accounts with a supplier and would thus be a lower priority otherwise. Pay on time, provide feedback, and be a good customer. Also, consider partnering with another business for group contracts that give you more leverage.
Balance Cost & Risk
Some cheaper practices like outsourcing, offshoring, and lean manufacturing come with the risk of reduced quality and unreliable shipping times. Balance price with speed and quality. Understanding when the market is volatile and the rise and flow of demands can help you decide when to make a riskier choice.
Prepare for Disruptions
Bad weather, material shortages, or a pandemic can affect manufacturing and supply chains. COVID-19, for example, caused nearly 39% of small businesses to have supply chain delays. Keeping up with the news and understanding marketing trends can help, but also have a ready list of backup suppliers and alternative transportation avenues to pick up the slack when possible. Sites like Alibaba, GlobalSources, and DHGate have huge databases of reliable suppliers.
Learn more about product sourcing in our article, “How to Source Products in 4 Steps.”
Choose a Reliable Transportation Partner
Your transportation partner is your customer’s last contact, which can affect their impression of your brand. Thus, while cost-efficiency is important, greater value might be placed on speed of delivery as well as delivering the product intact and well-packed.
Consider Getting Insurance for Supply Chain Issues
This can be shipping insurance, but also contingent business interruption coverage that will cover disasters so you can get back on your feet quickly.
Invest in Software
You should have software that helps you manage your inventory throughout the process, from ordering to delivery, and even tracking the materials or components for a product’s creation. The best POS software offer inventory tracking and invoicing, but there are other more focused inventory tracking programs for manufacturing as well.
Use Data Well
Forty percent of businesses surveyed use technology to track disruptions in their supply chain. Track your inventory and supply management to stay on top of inventory, boost fulfillment rates, build better relationships with retailers/customers, and more. Many inventory tracking software programs also include forecasting to help you plan ahead of time for seasonal highs and lows.
Outsourcing your supply chain logistics operations lets you concentrate on your business while experts handle the fulfillment and delivery. You can outsource the entire process, such as with dropshipping, fulfillment, and delivery with warehouse and 3PL services, or even individual parts product packaging.
Frequently Asked Questions (FAQs)
These are some of the questions we often encounter around supply chain management.
Trade groups such as the Association for Supply Chain Management and the Council of Supply Chain Management Professionals offer training to help you get started. Many colleges and universities with business or supply chain programs also offer courses and certifications, including online and other programs aimed at business owners.
This depends on how much of the supply chain management you do yourself. Fulfillment companies that handle warehousing and delivery provide just about everything including software for tracking shipments and inventory. Otherwise, you might need a point-of-sale system with good invoicing and inventory tracking. Accounting or manufacturing software may have some of these tools.
Sales software lets you track and predict product sales, while customer relationship management software makes it easy to communicate with customers in case there’s trouble with fulfillment or delivery.
To set up a supply chain, you need to know exactly what products or materials you need, develop relationships with the best vendors, find warehousing, and secure reliable transportation.
Even if your business doesn’t deal in traditional physical goods, you likely have a supply chain that needs managing. Real estate companies, for example, have a supply of properties that go through different steps of acquisition, renovation, marketing, and sale. Meanwhile, a cleaning service needs to order and maintain an ample stock of supplies.
We cover many ways in the article above, but it comes down to understanding your market–present and future, making relationships with valuable partners throughout the supply chain, and planning for contingencies. The use of third-party inventory trackers or fulfillment services can also streamline operations.
Supply chain management is the overseeing of your products from raw materials to delivery to your customer. It includes sourcing materials, warehousing products, processing orders, and delivery. Well-managed supply chains can save you money, improve customer satisfaction, and help you deal with unexpected disruptions. All that means fewer expenses, more profits, and the potential to grow your business.